A coin toss

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  By Guest Blogger Doug Rowat

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Coin tosses have always been a part of American culture.

In 1903, the Wright brothers flipped a coin to see who would attempt the world’s first manned flight (Wilbur won). Batman’s archnemesis, Two Face, a character created during the chaos of WWII, famously makes decisions based on the randomness of a coin toss. In Hollywood, one of movie history’s most famous scenes features villain Anton Chigurh (Javier Bardem in 2008’s Best Picture–winner No Country for Old Men) demanding that an innocent storekeeper flip a coin to decide whether he lives or dies. And coin tosses have started the most American of all spectacles—the Super Bowl—each and every year since the first in 1967. Naturally, the Super Bowl coin-toss result is also one of America’s most popular sports bets.

It seems fitting then that the outcome of this pivotal moment in US financial-market history might come down to, at least figuratively, a coin toss as well. We began the year, according to market oddsmakers, with less than a 20% chance of a US recession. Now we sit at, you guessed it, a virtual coin toss:

Are we great yet?

Source: National Bank Investments

Reflecting the 50-50 recession odds, the investment world is moving increasingly towards a binary view of Trump’s tariff policies as well. Some are in the camp that he’s willing to burn the US economy to the ground, while others, including myself, are in the camp that he’ll ultimately bend, as market, economic and political pressures force him to make concessions. Perhaps this week’s announcement that he will delay tariffs (his fourth delay, btw) on many countries for 90 days is a start.

Until then, we wait. In limbo. Waiting as that shiny American quarter spins through the air.

How best then to position your portfolio until the quarter lands? Unless you’ve entered Trump’s brain and definitively know something that the rest of us don’t, be balanced and diversified.

If I’m right and Trump makes concessions (though he’d never openly concede this, of course) then a balanced portfolio will still capture a good chunk of the upside. However, and perhaps more importantly, a balanced portfolio will almost certainly reduce the downside in the event that Trump does, in fact, plan on going the distance.

Balanced portfolios have historically experienced significantly less drawdown during moments of market crisis. During the dot-com bust of the early 2000s, for example, an equity-only portfolio (the S&P 500) experienced a more than a 40% drawdown at its worst point in 2002; a generic 60/40 balanced portfolio meanwhile dropped about half as much. Better yet, the balanced-portfolio investor regained all of their lost ground by 2004. The equity-only investor had to wait until 2007 to say the same.

Similarly, during the financial crisis, an equity-only portfolio collapsed by more than 50% at its worst point; a 60/40 balanced portfolio was down a third less. And, again, the recovery for the balanced portfolio was much faster—15 months sooner than the equity-only portfolio.

60/40 balanced portfolios have experienced lower drawdowns and faster recoveries

Source: Janus Henderson. Equity portion refers to S&P 500 (total return), fixed income portion refers to Aggregate Total Return Bond Index

So, less downside, faster recovery. All of which reduces the impulse to make reckless, emotional investment decisions. That’s why we believe in balance.

These past scenarios are illustrated with a generic 60/40 portfolio because I wasn’t managing portfolios back in the 2000s, but the pattern hasn’t changed much now that I am: generally speaking, our clients, who are always balanced and diversified, experienced a similar pattern during both the 2020 Covid crisis and the 2022 inflation crisis—less downside, faster recovery.

It remains to be seen whether the recovery will be faster for our balanced portfolios this time around, but predictably, they’re doing their job of limiting this year’s downside. Most of our client portfolios, as of this writing, are down 2% or 3% y-t-d. Compare this to the S&P 500, which is down more than 7%.

So, if you’re balanced and diversified, you’re as prepared for Trump as you can be.

Now, call it in the air.

Doug Rowat, FCSI® is Portfolio Manager with Turner Investments and Senior Investment Advisor, Private Client Group, Raymond James Ltd.

Source: https://www.greaterfool.ca/2025/04/12/a-coin-toss/